Airline and travel shares slumped amid fears the disruption caused by the terror plot could cost the UK economy £10 million a day.

But after initial panic the London Stock Market recovered its nerve.

After plunging more than 100 points it ended just 37.1 down at 5823.4.

Anti-terror police arrested 21 people in London, the Thames Valley and Birmingham on Wednesday night and and were searching several addresses yesterday.

In the wake of the alert, British Airways shares fell five per cent closing at 3701/4p, down 193/4p, wiping around £200 million off the value off the company, while low-cost rivals Ryanair and easyJet were down two per cent.

BA declined to estimate how much yesterday's disruption might cost it in revenues.

However, Maurice Fitzpatrick, an analyst at Grant Thornton, said it was likely to cost the UK economy at least £3.2 million for every hour of delay through lost productivity.

"For an average delay of three hours, UK plc could lose £10 million per day. The figures rise dramatically due to lost tourism revenue as incoming flights are cancelled and as a result of the expected downturn in foreign visitors."

Richard Lambert, director-general of business group the CBI, said UK companies were right behind the police and security services but said it was too early to assess the full impact to business.

"There could clearly be some economic impact, with the transport and tourism sectors a particular concern, but it is far too early to know what the effect will be," he said.

"The events serve as a sharp reminder for all businesses to have comprehensive contingency plans in place to protect their customers, staff and business when the unexpected occurs."

Hotel groups were also knocked by the sell-off with InterContinental losing three per cent. Airline related stocks such as Rolls-Royce and BAE Systems also came under pressure.

And retailer WHSmith lost one per cent as analysts noted the prevalence of stores at UK airports.

The shops normally benefit from the feel-good factor when people go on holiday and stock up on books and newspapers, but passengers were banned from carrying anything other than essential items on planes.

Jimmy Yates, trader at CMC Markets, said: "As we've seen on a number of occasions in recent years, concerns of terrorist threats do initiate a degree of profit taking in the short term but the opportunity to buy up some keenly priced stocks invariably tends to prevail."

Craig Pennington, energy portfolio manager at Schroders in London, said: "There is more risk in the world. At times of heightened uncertainty people sometimes become more risk averse and it sparks a broader sell-off."

The widespread cancellation of flights represents the fourth summer of disruption for BA after a wildcat strike by workers at Heathrow in summer 2003 was followed by severe staff shortages a year later and the Gate Gourmet catering dispute in 2005.

Despite soaring oil prices, the industry has shown signs of recovering from the September 11 and the London terror attacks last year.

BA recently made pretax profits of £195 million in the three months to the end of June - an increase of 57 per cent on a year ago.

Henk Potts, equity strategist at Barclays Stockbrokers, said: "This comes at a time when airlines have been doing well in terms of results.

"But it also shows the risks in investing in the airline sector. BA is more vulnerable than others because it is heavily reliant on transatlantic routes."

And Mike Powell, airline analyst at Dresdner Klein-wort, said he did not expect any long-term effects to share prices.

"This hopefully is a failed attempt," he said. "Even if you look at 9/11 and the terrible attack that happened, everyone said it would change air travel for ever, but people have returned.

"There has been a big catch up and in 2006 there are as many passengers as you would have expected in 2001 before the events that happened."

He said passengers would have to live with tougher security measures to prevent attacks and people would suffer with disruptions but "hopefully will be patient and understand these are necessary measures".

Meanwhile, oil prices fell two per cent to below $75 a barrel following the anti-terror swoops.

Oil consumption would be among the hardest hit if travellers turn away from flights and consumer confidence takes a knock. Jet fuel prices in particular moved down sharply in the weeks after September 11, 2001 and after the SARS outbreak in 2003.